Analysis: Goldman, Morgan Stanley Seek to Plug Holes After Split Verdict on 'Living Wills'
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Argentina Bans on Bond Payments Dropped by U.S. Judge
A judge overseeing lawsuits tied to Argentina’s 2001 sovereign debt default dropped orders barring the nation from issuing bonds and sanctioning its return to the global debt markets after a 15-year absence, Bloomberg News reported on Friday. U.S. District Judge Thomas Griesa’s order came after the world’s eighth-largest country said that it dropped a law barring payment to holdout creditors and paid bondholders who settled earlier this year, including a $2.3 billion deal with Paul Singer’s Elliott Management Corp. The judge set those conditions for the orders to be dropped. Argentina now can go ahead with a planned $15 billion bond sale to pay off the holdout creditors from a 2001 default.
U.S. Regulators to Focus on Borrowing at Large Hedge Funds
Top U.S. regulators are set to focus on borrowing by the hedge-fund industry, particularly large funds, as they assess potential risks in the asset-management sector, the Wall Street Journal reported today. The Financial Stability Oversight Council voted unanimously at a public meeting yesterday to endorse a 27-page “update” of its more-than-two-year review of financial-stability risks tied to the asset-management industry. Treasury Secretary Jacob Lew said that the oversight council, a group of senior regulators that he heads, has found that leverage in the hedge-fund industry appears to be concentrated at larger funds, though he cautioned that “greater leverage does not necessarily imply greater risk or systemic risk” and more factors need to be considered. Securities and Exchange Commission Chairman Mary Jo White said her agency, the fund industry’s primary regulator, supported the council’s joint statement yesterday but that the SEC would be making its own decisions about future rules. “We will consider and rely on our analysis of the input we receive from the public in the notice and comment process,” she said.
UBS Blamed in U.S. Trial for $2.1 Billion in Mortgage Bond Losses
UBS AG went to trial yesterday over $2.1 billion in losses that investors incurred on mortgage-backed securities after the collapse of the U.S. housing market, Reuters reported. The non-jury trial in Manhattan federal court stems from a lawsuit being pursued by U.S. Bancorp on behalf of three trusts established for mortgage-backed securities, the type of financial product at the heart of the 2008 financial crisis. Sean Baldwin, the trusts' lawyer, in his opening statement said UBS contractually agreed that the mortgages underlying those securities would meet certain standards. When pervasive defects emerged, the bank refused to buy them back, he said. But Thomas Nolan, a lawyer for UBS, told U.S. District Judge Kevin Castel that the trusts' lawyers were looking at the loans with a "hindsight bias," and the question was whether the loans were seen as defective when they were issued in 2006 and 2007.
Invesco Cuts Ownership of SunEdison's TerraForm Power Yieldco
Invesco Ltd., one of the largest investors in TerraForm Power Inc., sold more than half of the Class A shares it held in the yieldco unit of embattled renewable-energy developer SunEdison Inc., Bloomberg News reported yesterday. Atlanta-based Invesco owned 3.75 million Class A shares of TerraForm Power as of March 31, or about 4.7 percent, according to a filing Monday, down from 9.05 million shares at the end of 2015. That leaves the money manager, formerly the second-largest investor in the stock, as the seventh-largest holder. TerraForm Power is one of two yieldcos — publicly traded holding companies that buy and own operating wind and solar farms — created and controlled by SunEdison. The energy company is teetering on the brink of bankruptcy after a global acquisition spree that drove up its debt to $11.7 billion as of Sept. 30.
Banks Face Massive New Headache on Oil Loans
When big banks announce earnings starting on Wednesday, the spotlight will be on massive energy loans that most investors didn’t know much about until recently, the Wall Street Journal reported today. These unfunded loans have been promised to energy companies that haven’t yet tapped the money. Many banks historically haven’t disclosed these loans but have begun to recently following the extended slide in oil and gas prices. In the first quarter, a handful of energy borrowers announced more than $3 billion of drawdowns against these types of loans. Those commitments are expected to trickle down to bank earnings and saddle firms with more energy exposure at a time they are trying to pare it back. Banks in recent months have set aside billions of dollars to cover potential losses tied to energy companies, a trend likely to continue as more loans go bad. Fitch Ratings Inc. is expected to release a report this week saying that nearly 60 percent of unrated and below-investment-grade energy companies are likely to have loans labeled as “classified,” or in danger of default under regulatory guidelines. “It’s grim,” said Sharon Bonelli, senior director of leveraged finance at Fitch. Read more. (Subscription required.)
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Analysis: Treasury’s Inversion Crackdown Will Sting Investment Bankers
Treasury’s tough new rules on corporate inversions are unwelcome news for beleaguered investment bankers, the Wall Street Journal reported today. The decision by Pfizer to cancel its $150 billion merger with Allergan PLC means that investment bankers who worked on the deal will lose out on hundreds of millions of dollars of fees. Late last year, research firm Freeman & Co. estimated those fees would amount to between $280 million to $350 million. Pfizer’s advisers were Goldman Sachs Group, Centerview Partners, Guggenheim Partners and Moelis & Co. Freeman & Co. estimated it would pay them between $120 million and $150 million in fees. Allergan, advised by JPMorgan Chase & Co. and Morgan Stanley, was expected to pay between $160 million and $200 million. Advising on tax inversions has been a lucrative business for investment bankers. U.S. investment banks have been advisors on over $700 billion of announced tax inversion deals since 2011, according to Dealogic. Last year alone, U.S. advisors were involved in announced deals valued at $240 billion. Fees on inversions since 2011 have amounted to $1.3 billion, Thomson Reuters estimated. Such deals make-up around 5-6 percent of the overall mergers and acquisitions market, according to Credit Suisse analyst Ashley Serrao.
U.S. Unveils Retirement-Savings Revamp
The Obama administration today will roll out a long-anticipated new rule aimed at transforming the way the financial industry delivers retirement-savings advice — but offered significant concessions to critics that could make it more palatable and less disruptive for brokers, the Wall Street Journal reported today. The fiduciary rule is aimed at curbing billions of dollars in fees paid annually by small savers who transfer money out of 401(k)s, which are required to operate in their best interests — and into individual retirement accounts, which aren’t currently bound by such protections. There, savers may be working with financial-product salespeople who earn more selling certain products and don’t have to put their clients’ interests before their own. Administration officials intend it as a direct attack on what they consider “a business model [that] rests on bilking hard-working Americans out of their retirement money,” Jeff Zients, director of the White House National Economic Council, told reporters yesterday. About $14 trillion in retirement savings could be affected by the rule, which requires stockbrokers providing retirement advice to act as “fiduciaries” who will serve their clients’ “best interest.” That is stricter than the current standard, which only says they need to offer “suitable” recommendations, a standard that critics say has encouraged some advisers to charge excessive fees or favor investments that offer hidden commissions.